Friday, March 23, 2018

Fantastic myth-busting on the "skills gap"

The figure of 6 million job openings comes from the Bureau of Labor Statistics’ (BLS) Job Openings and Labor Turnover Survey (JOLTS) report. BLS issues the survey results on a monthly basis, with the latest published report—the January 2018 issue—providing data as of November 2017. The latest job opening figure shows 5.9 million job openings in the United States, which is little changed from the previous 24 months. However, it is important to note that these job openings are not the result of new jobs coming online; further, the implication that these jobs go unfilled is highly misleading. The openings result from a variety of factors, most of which can be characterized as frictions in the labor market.

The job openings are the result of:

3.2 million workers quitting their current jobs;

1.7 million workers losing their jobs as a result of a layoff or firing;

0.3 million workers retiring, going on disability, or transferring to a different location within the same firm.

That means 5.2 million job openings are the result of separations. This leaves approximately 700,000 unaccounted for, but presumably relatively new job openings.

The 5.2 million job openings that result from separations are actually an indication of a healthy economy. As the above indicates, the majority of these openings are voluntary. They occur because an employee perceives a better opportunity in another firm or another location. The number of separations tends to increase as the economy improves and declines when the economy goes into recession. As Figure 1 shows, the number of job openings dropped significantly during 2008 and 2009—the period of the great recession. Since 2009, the number of openings has been climbing steadily, reaching around the 6 million mark in an economy where the stock market is at record highs and unemployment is at near-record lows.

Nevertheless, if all these openings—whether they result from separations or from the creation of new positions—went unfilled, then that would present a serious problem for the economy. However, the same BLS job opening report also provides the count of new hires made each month: For November 2017, BLS reports that employers hired 5.5 million workers. This leaves approximately 400,000 job openings that went unfilled during November, which represents 0.2 percent of the U.S. labor market. It is important to note that the November 2017 figures are very consistent with the monthly data since January 2016. In fact, hires have exceeded separations, and the openings they create, for every month since 2010. A mass of jobs in the United States are not going unfilled; a relatively small fraction of job openings are taking relatively longer than the desired time to fill.

I need a couple of days to absorb this, but it is remarkable to have such a popular stat punctured a little bit.